Fifth Standing Committee on Delegated Legislation

Tuesday 18 June 2002

[Mrs. Irene Adams in the Chair]

Draft Horticultural Development Council (Amendment) Order 2002

10.30 am

The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Mr. Elliot Morley): I beg to move,

That the Committee has considered the draft Horticultural Development Council (Amendment) Order 2002.

First, may I say how nice it is to see you in the Chair, Mrs. Adams, and what a pleasure it is to serve under you this morning?

The Horticultural Development Council is an executive non-departmental public body that is funded by a statutory levy on growers of horticultural produce. The council was established by the Horticultural Development Council Order 1986, under the Industrial Organisation and Development Act 1947.

The council's main function is to commission research and development on behalf of the horticultural industry. The chairman and council members of the HDC are appointed by Ministers from the Department for Environment, Food and Rural Affairs. There is no public funding; the council is self-financing through the levy.

The HDC raised about £3.7 million from the levy in 2000–01. It commissions near-market research, building on strategic horticultural research programmes, including those of DEFRA, and carrying results through to market application.

Some research projects are suggested by the grower panels, but the council has the final say on the projects to be adopted, giving due consideration to environmental benefits, as well as the industry's needs. Expenditure on research and development is proportionate to the levy raised from growers in each crop sector.

HDC-funded research has been directed at crop protection, reduction of input costs, increased efficiency in yield and improved quality. Among other things, the council helps to meet the demands of consumers and retailers for food produced with fewer chemicals. That is advantageous to the industry and to consumers.

As a development council established under the 1947 Act, the HDC is subject to statutory review at five-year intervals. The reviews determine whether the HDC should continue for a further term and whether any changes are required to the council's duties, structure or remit. The last review was conducted in 1999, when, following an industry consultation exercise and a poll of levy payers, Ministers agreed that the HDC should continue for another five years.

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As a result of that consultation, Ministers agreed that a change was required to the levy arrangements, which were uneconomic when applied to small growers. It had become clear that the net sales threshold of £25,000 before the levy became payable, which was set under the 1986 order, was unrealistically low.

The levy was becoming a burden on growers at the bottom end of the scale and collecting it from smaller growers was becoming uneconomic. That view was supported by an independent economic evaluation of the HDC, which was commissioned by the Ministry of Agriculture, Fisheries and Food and undertaken by Drew Associates. Ministers therefore agree that the levy threshold should be raised to £50,000 with effect from the levy year commencing 1 October 2000. That led to the Horticultural Development Council (Amendment) Order 2000.

The increased levy threshold had only a minimal effect on the HDC's income and led to a switch of saved administrative costs to the research and development programme. It also released about 660 businesses from the obligation to pay the levy, at an average saving per business of about £190 per year.

Further amendments to the 2000 order are needed to take account of the Treasury's instructions relating to the ''Whole of Government Accounts'' project. The move to WGA for Departments and non-departmental public bodies such as the HDC entails the standardisation of accounting years. The Government Resources and Accounts Act 2000 established an accounting year end-date of within three months of 31 March. That is a recognised accounting period. The HDC accounting year runs parallel with its levy year, from 1 October to 30 September. For the sake of clarity and administrative efficiency, the HDC wishes to maintain common accounting and levy years, with both years commencing on 1 April. I can see the sense in that. As the dates applying to levy years are stipulated in the Horticultural Development Council Order 1986, the legislation must be amended.

In simple terms, the change will be put into effect by introducing a six-month levy period commencing on 1 October 2002 and running until 31 March 2003. The next levy period will be 1 April 2003 to 31 March 2004, and subsequent levy periods will be for the 12 months commencing on 1 April within that cycle.

I shall explain some minor changes that it is appropriate to make at the same time as the ones I have outlined. The description of processing in the interpretation section of the order is to be amended to clarify the processing costs to be deducted from the value of a grower's sales when calculating liability for levy. The changes also clarify the fact that the rates payable on a rateable packhouse are eligible for deduction from business turnover when the liability for levy is being calculated.

In addition, the order makes it clear that aquatic plants are liable for levy. Levy is already being collected from growers of such plants under an existing category, so that is not a change. Finally, the order also makes it clear that all herbs, not just

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edible ones, are liable for levy. Again, levy is already being collected from growers of such plants, so we are just clarifying the operation of the 1986 order.

The most significant change that will be made by the new order relates to the alteration in the levy year, which I have just outlined. That change will have no adverse effects on levy payers, and they will not be asked to pay any extra levy. The order will result in a simple change to the accounting year, which will not result in an increased cost. The overall levy payable will be no different; the only difference is in the timing.

There will be a six-month levy period from 1 October 2002 to 31 March 2003, followed by 12-month levy years from 1 April 2003. For the six-month period, levy payers will be assessed on the sales shown in their accounts for the calendar year 2001. The six-month period means that growers will pay only half the levy that would have been due for a full levy year, commencing on 1 October 2002, had the old system continued. For the year commencing on 1 April 2003, levy will be calculated on sales in 2002, and so on in subsequent years.

The industry has been consulted about the changes, and all the amendments to the 1986 order are supported. The principal change is technical, but it is designed to make accounting more transparent and logical. Other changes relating to certain aspects of the 1986 order are already being applied, but need to be clarified. I commend the order to the Committee.

10.37 am

Mr. Jonathan Sayeed (Mid-Bedfordshire): It is a pleasure to serve under your chairmanship, Mrs. Adams.

The Horticultural Development Council is a statutory body that administers the collection of an industry levy that is intended to fund essential horticultural research and development. The council has been doing an excellent job since 1986. The horticultural industry employs a notable 43,000 full-time and part-time workers, and tens of thousands of casual workers, although there have been particular problems with casual workers over the past few years. As with most other sectors, Britain's horticultural industry has been affected by the strength of sterling and by the enormous increase in environmental legislation. However, it has traditionally been regarded as a vibrant success story and is not reliant on the taxpayer for a subsidy.

The order has already been debated in the other place, where Lord Whitty made it clear that for the purposes of efficiency—the Minister also made the point—the HDC wishes to ensure a common accounting and levy year that starts on 1 April. The dates applying to the original levy years are in the Horticultural Development Council Order 1986, so it is necessary to amend that order.

The description of processing in the 1986 order is also to be amended. Lord Whitty and the Minister have provided useful clarification of the changes, including the fact that the rates payable on a rateable packhouse are eligible for deduction from business turnover when calculating levy contributions.

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That is particularly useful with reference to the Inland Revenue. The other change is that all herbs are liable to the levy too.

The noble Lord assured the other place that those changes would have no adverse effect on levy payers, and the Minister has reiterated that. However, I am slightly confused by that. If all herbs are liable for the levy, whereas before they were not, does the Minister believe that the changes will not affect levy payers or their cash flow, or were all herb growers, whether of edible or non-edible herbs, previously paying the levy, so the change will not affect them?

I understand, however, that the main difference is in the timing of payments. There will now be a six-month and a 12-month levy, at least in the short term. Will the Minister confirm that the new levy payment timings will not adversely affect the cash flow of the horticultural industry? If the industry has to pay two sets of levy, particularly as its seasonal nature might mean that the levy periods will not coalesce with the timing on payments received, is the levy payment so low that it will not affect their cash flow, or has it already been taken into account?

The National Farmers Union and the industry have already said that they have no objections to the amendments, and the Opposition are content for the order to proceed.

Imports continue to flood our markets. Hence, it is vital that the horticultural industry remains as competitive and efficient as possible. We believe that good research is vital to the successful future of the industry, that a levy is necessary to fund that research and, subject to satisfactory answers from the Minister, that the order will help the HDC to fulfil its remit.